OT: starting an LLC.

[stephenmarklay]

I want to start an LLC for some hobby stuff that I want to run as a business if nothing else to right off trips associated to it.

What is the best way to go about it?

[zap]

Your state should have some info on their website.

Question. Do you plan on having revenue exceeding expenses at some point?

[echelon_john]

You don't necessarily need to be an LLC to do this; you could be a sole proprietorship, e.g. Stephan d/b/a Write-off Unlimited; the key is that you would file a Schedule C for the business that would be in addition to your 1040.

I'm not a tax guy or an attorney, but the point is that being an LLC has some other implications which you may or may not want to get into.




QUOTE=stephenmarklay;2166805]I want to start an LLC for some hobby stuff that I want to run as a business if nothing else to right off trips associated to it.

What is the best way to go about it?[/QUOTE]

[ColonelJLloyd]

https://www.irs.gov/uac/business-or-hobby-answer-has-implications-for-deductions

[EDS]

I want to start an LLC for some hobby stuff that I want to run as a business if nothing else to right off trips associated to it.

What is the best way to go about it?

https://www.sos.wa.gov/corps/LimitedLiabilityCompaniesLLCOnlineandPaperRegistra tions.aspx

[Alan]

There are IRS rules about "hobby" businesses and deductions that you need to be aware of before setting up a new entity. Suggest talking to an experienced attorney and CPA before doing this as it may not be worth it.

I am a CPA but don't do tax but am aware of these rules.

Alan

[doomridesout]

See §183 and §469 of the Revenue Code. Talk to a tax lawyer.

[notsew]

I'm no lawyer, but I did at one point have a small business in WA. For writing stuff off the LLC isn't necessary, it's more of a liability protection tool.

All you really need to do is get a business license from the state. In addition to whatever IRS stuff, you'll have to file state and local taxes even if you don't make money. Notably, you'll have to pay B&O tax to the city (if Spokane has it) on any revenues, not just profits.

I also suspect the IRS has ways of deterring a business designed exclusively to write off expenses, so hopefully there are some revenues involved (but I don't really know anything about that).

[Ken Robb]

I had a corporation when I was a real estate broker. The IRS rules on what I could write off got so restrictive that the corporation became more trouble and expense than it was worth. Just for starters it means preparing and keeping corporate records so you can file CORPORATE tax returns as well as your personal returns. The cost of doing this alone may offset any monetary benefit from writing off travel unless you do a lot of deductible traveling.

[stephenmarklay]

Your state should have some info on their website.

Question. Do you plan on having revenue exceeding expenses at some point?

Boy I hope so :)

[stephenmarklay]

Thanks everyone. Great thoughts. I really plan on making money at it some point and there is some liability involved. This has to do with motorcycling events and such. So the write off is really legit if I were to do that part.

[.RJ]

You can file an LLC in about 5 minutes on your state's website.

Report your income and expenses on your individual taxes (schedule C)

Easy. Done.

[carpediemracing]

One thing my lawyer did when I created my LLC (dissolving it this year) is in the bit where it says what the LLC's purpose is, the lawyer put what I wanted to do ("promote bicycle related events" or something like that) but ended with ("and engage in any other legal business in the state of Connecticut").

This way I could do an IT gig and put the income toward my LLC. I did that, and some handyman work, and the LLC got paid.

You do need to make money, it might be 2 of 5 years, something like that, else you can't write stuff off. Otherwise we could all make cycling a business and write off all our bike stuff.

My wife is a CPA but I don't ask her about the intricacies of things. She's on the up and up so she wouldn't have okayed being an LLC unless it was legit.

Some example things. The tow vehicle, which I bought only for towing the LLC's trailer, is a personal vehicle, because it's in the gray area in terms of use over the year. The trailer is the LLC's. I have ZERO bike equipment paid for by the LLC; one year, when the kits had the LLC's name on them, I could write off the money I paid as advertising (it was expensive, about 10x as much as if I just bought a kit for myself, and I had to buy my kits anyway).

[BobO]

You do need to make money, it might be 2 of 5 years, something like that, else you can't write stuff off. Otherwise we could all make cycling a business and write off all our bike stuff.

If you set the corporation up as an S corp rather than LLC you can sponsor a cycling team and expense some of it.

*I do not not that this is true outside of AZ*

[ColonelJLloyd]

If you set the corporation up as an S corp rather than LLC you can sponsor a cycling team and expense some of it.

This is confusing and inaccurate. For one, federal tax status and legal corporate structure are separate issues. i.e. an LLC can be taxed as an S-Corp.

Anyhow, as has been said in this thread and all of them like it the correct answer is to consult a professional and PAY THEM to ask you the right questions and advise you based on your answers.

[BobO]

This is confusing and inaccurate. For one, federal tax status and legal corporate structure are separate issues. i.e. an LLC can be taxed as an S-Corp.

I agree, a professional is highly recommended in setting up and assisting in the management of a corporation.

S Corporation

An S corporation (also referred to as an S corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation.

An S corp is a corporation with the Subchapter S designation from the IRS. What makes the S corp different from a traditional corporation (C corp) is that profits and losses can pass through to your personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed. There is an important caveat, however: any shareholder who works for the company must pay him or herself "reasonable compensation." Basically, the shareholder must be paid fair market value, or the IRS might reclassify any additional corporate earnings as "wages."

Forming an S Corporation

To file as an S corporation, you must first file as a corporation. After you are considered a corporation, all shareholders must sign and file Form 2553Download Adobe Reader to read this link content to elect your corporation to become an S corporation.

Once your business is registered, you must obtain business licenses and permits. Regulations vary by industry, state and locality. Refer to our Business License and Permit guide to learn more.

Combining the Benefits of an LLC with an S Corp

There is always the possibility of requesting S corp status for your LLC. Your attorney can advise you on the pros and cons. You'll have to make a special election with the IRS to have the LLC taxed as an S corp using Form 2553. And you must file it before the first two months and fifteen days of the beginning of the tax year in which the election is to take effect.

The LLC remains a limited liability company from a legal standpoint, but for tax purposes it's treated as an S corp. Be sure to contact your state's income tax agency where you will file the election form to learn about tax requirements.

Taxes

All states do not tax S corps equally. Most recognize them similarly to the federal government and tax the shareholders accordingly. However, some states (like Massachusetts) tax S corps on profits above a specified limit. Other states don't recognize the S corp election and treat the business as a C corp with all the tax ramifications. Some states (like New York and New Jersey) tax both the S corp’s profits and the shareholder's proportional shares of the profits.

Your corporation must file the Form 2553 to elect "S" status within two months and 15 days after the beginning of the tax year or any time before the tax year for the status to be in effect.

Learn more about your tax obligations as a S corporation.

Advantages of an S Corporation

Tax Savings. One of the best features of the S corp is the tax savings for you and your business. While members of an LLC are subject to employment tax on the entire net income of the business, only the wages of the S corp shareholder who is an employee are subject to employment tax. The remaining income is paid to the owner as a "distribution," which is taxed at a lower rate, if at all.
Business Expense Tax Credits. Some expenses that shareholder/employees incur can be written off as business expenses. Nevertheless, if such an employee owns 2% or more shares, then benefits like health and life insurance are deemed taxable income.
Independent Life. An S corp designation also allows a business to have an independent life, separate from its shareholders. If a shareholder leaves the company, or sells his or her shares, the S corp can continue doing business relatively undisturbed. Maintaining the business as a distinct corporate entity defines clear lines between the shareholders and the business that improve the protection of the shareholders.

[stephenmarklay]

I appreciate this feedback. I think I am going to wait and let things evolve before diving into an LLC.

Thanks again Paceliners!

[gallant]

Stephan - what state are you in? In California you have to pay an $800 tax for your LLC every year regardless of if you make any profit. When I started my LLC I used legal zoom. Was much cheaper than hiring a lawyer (assuming you have a simple setup). But it gives you a bit more guidance vs just filing the forms directly. Also keep in mind that the LLC also requires you to file paperwork every few years to keep in compliance. Good luck!


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[stephenmarklay]

Stephan - what state are you in? In California you have to pay an $800 tax for your LLC every year regardless of if you make any profit. When I started my LLC I used legal zoom. Was much cheaper than hiring a lawyer (assuming you have a simple setup). But it gives you a bit more guidance vs just filing the forms directly. Also keep in mind that the LLC also requires you to file paperwork every few years to keep in compliance. Good luck!


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Thanks. I am in WA state. Yes I know that there is expense involved.